Finance is the heart of business

Finance is the heart of business. Every corporation has a financial statement that summarizes its profit/loss for a period of time. Microsoft Corp. hires accountants to keep track of the company’s finances. The accounting system generates two types of financial report: managerial accounting report for internal use and financial accounting reports for external use. The financial department creates an annual report where it should include three financial statements: income statement, cash flow and balance sheet.

Peter Klein is currently the Chief Financial Officer (CFO) of Microsoft. His responsibility is financial management which includes analyzing, accounting, and reporting the financial status of the company. Financial managers need to consider money use in the company, where does money come and go; thus, a statement of cash flow is needed to keep record of how the company uses money. There are three main areas where the money goes into, financing, investing and operating activities. This year, Microsoft uses -$13.29 billion on financing, $11.31 billion on investing and $24.07 billion on operating activities.

Balance sheet is another financial statement that the financial department is responsible for analyzing and reporting to the board of directors. Balance sheet shows the company’s assets, liabilities and equity. Compared to last year, Microsoft Corp. has shown growth in all three components. The total assets changed from $77.61 billion to $86.11 billion. The company’s total liabilities are $39.94 billion. Its shareholder’s equity is $46.18 billion.

Microsoft has improved its income this year (2010) compared to last year’s (2009). From the financial overview below, Microsoft’s net sales/revenue is approximately $61.99 billion. It has increased 5.73% from 2009. The gross profit also shows growth of 6.68% which is $49.59 billion. Its net income is $18.76 billion compared to 2009’s income, which is $14.57 billion. This indicates that Microsoft has been gaining more profits and becoming more successful.